It is reasonable to question why there always seems to be a huge gap between the price of Sydney housing and everywhere else. The current median house value of $1.5 million in Sydney is 50 percent more than the next most expensive capital city, Brisbane’s $1.02 million.
The reality is, subsequent to the First Fleet docking in Botany Bay in 1788, Sydney had a 40 to 60-year urban development headstart on every other Australian city.
Infrastructure, essential amenities, a commerce center and 2-full generations of house price growth had evolved in Sydney by the time other cities such as Launceston (1804), Brisbane (1825), Perth (1829), Melbourne (1835), Adelaide (1836), Bendigo (1851) and Townsville (1865) were founded.
A rollercoaster of major events then unfolded.
There was the world’s biggest Gold Rush (1850 to 1880’s), Australia’s banking collapse (1890’s), the Roaring 1920’s, the Great Depression (1930’s) and two World Wars.
From the end of World War 2 onwards, large portions of Australia’s financial capital were directed towards Sydney.
That concerted effort to develop Sydney into a globally respected economic nerve center played a significant role in Sydney house prices consistently leading the nation.
Population is ‘irrelevant’
A century of indisputable evidence confirms that the size of each city’s population along with annual population growth rates have nominal influence on real estate performance [here’s proof].
Located 700-kilometres north of Sydney and with a current population of just 37,000 people, the current median house price in Byron is on par with Sydney (population 5.6 million).
In fact, Byron maintained the Number 1 price ranking throughout much of the last 20-years.
House prices in Canberra (currently $980,000) have often been more expensive than Melbourne (currently $950,000), despite their respective populations of 480,000 and 5.4 million.
The house price ladder order of Australian cities is forever changing.
Perth’s median house price of $496,000 was Australia’s highest in 2006, ahead of Sydney.
In that same year, Darwin was more expensive than Melbourne.
In 2008, Port Hedland (population 14,000) had Australia’s highest median house value.
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Century-old bemoaning
My analysis of the archives of Australian real estate history confirms that construction costs, property taxes, housing supply constraints, the rental market and housing affordability have always been central to national debates.
Australians were bemoaning ‘housing affordability’ when the price of a typical house was circa $2,000 back in 1924.
Back then, Sydney’s population was nudging 1-million, Canberra (founded 1913) only had a population of 7,000 and Broken Hill (population 27,000) was Australia’s 12th largest city.
In 1947, 1.6 million people lived in Sydney, representing 21.5 percent of Australia’s total population (that was slightly higher than today’s 20 percent).
45 percent of Australian households were renting.
It then cost $3,000 to buy a standard new house in Sydney.
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Under the aspirational leadership of Australia’s longest serving Prime Minister, desire to own a home increased significantly during the 1950’s and 1960’s.
Availability of credit was the biggest barrier for homeownership.
Financial institutions had limited capital reserves, borrowers did not have the plethora of home loan product options that exist today, and the minimum deposit hurdle was 30 percent.
During the 1970’s, a typical household had more mouths to feed than now (usually 3+ children), they only had 1-income, inflation was stubbornly above 10 percent for more than a decade, and home loan interest rates hovered between 7 and 11 percent.
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In every generation, there has always been a bunch of boffins disguised as ‘experts’ reporting on how long it took a ‘typical household’ to save a 20 percent deposit.
They always neglect to comment that each generation had very different minimum deposit requirements, different home funding options and very different priorities for discretionary expenditure (overseas travel, dining out, retail sugar-fixes, etc).
Related article: Melbourne’s property market history
Any legitimate property market expert with bona fide credentials knows that more than a century of evidence confirms there never has been a direct correlation between the median wage and anything else that humans acquire with their wage, including real estate.
Cries of a ‘housing bubble bursting’ seemingly happen every single year.
Despite major events of adversity in every decade, there has never been a single decade when the value of a standard Sydney house wasn’t worth significantly more at the end compared to the beginning of the decade.
Truth be known, the last truly national property market downturn in Australia was way back in the early-1930’s.
From $87,000 in mid-1985 to $470,000 in mid-2005, Sydney’s median house price increased 5.4-times across that 20-year period.
The value of a typical Sydney house then increased 3.2-times over the last 20-years, to the current value of $1.5 million.
On the balance of probabilities, Sydney’s median house price might be in the vicinity of $3.5 million in 2045 (2.3-times).
While people always seem to obsess about dollar-values ($), the official data confirms Sydney’s 5.6 percent annual house price growth rate over the last 20-years was middle-of-the-pack when compared against Australia’s 400+ townships.
Superior rates of growth occurred in numerous other cities.
Examples across the country include an average annual 7.9 percent in Hobart, Launceston (7.8 percent), Busselton (6.9 percent), Toowoomba (6.4 percent), Coffs Harbour and (6.2 percent).
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Apartments Aren’t Fit For Purpose
Progressively over the last 50-years, the dominant response to Sydney’s sky-high house prices has been to aggressively increase density by forcing en masse development of apartment towers.
But Australians have always craved freestanding detached houses as homes [read more here].
A suite of official government statistics confirms that Sydney’s homeownership rates are embarrassingly low in the jurisdictions where density is highest.
Conversely, jurisdictions which support detached house lifestyles boast the highest homeownership rates, including several jurisdictions which have attracted a youthful demographic.
The data confirms households are consistently prepared to relocate and elect to pay more for a detached house than remaining living in a more affordable apartment closer to Sydney’s CBD.
This compelling piece of evidence is indicative of very few Australian owner-occupiers wanting a concrete cupboard in the sky as their long-term home.
Apartment values in Sydney have increased by a very modest 3.7 percent per year over the last 20-years.
That’s exactly the same capital growth rate of houses in Alice Springs and inferior to Broken Hill’s 5.9 percent.
Related article: Property market forecasts
Sydney’s sky-high house prices, along with the time people waste commuting around its congested transport networks, are the primary reasons why internal migration produced an enormous net population decline of 277,000 over the last decade.
Expect that trend to continue!
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